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complex problems in terms of relationships. We have to seek a greater understanding on the part of all the health power structure that this program, which all of the leadership seems to prefer, may be significantly modified if momentum is not gained in the highly complex urban areas.

At this point in the program if a speaker raises problems, he ought to have some pat solutions to them. Frankly, I do not, except to say that we should proceed as we have been, with more of our energies focused on the urban problems. We should not lose sight of the fact that although there have been problems of relationships, they have been relatively minor compared to other programs of this magnitude and especially programs as unique in approach as this one.

It does seem to me that in facing these problems the main challenge to the Coordinators over the next few months will be to maintain the integrity of the program. If the partnership concept is lost-that is, if it becomes predominately a medical society program or a hospital program or a medical center program in place of a balanced program between the partners-then its lustre and innovativeness will be lost. We can develop models and pilot projects until we are inundated with the reports involved, but they won't mean a thing unless they are accepted by the total health manpower through their involvement from the ground up. Obviously, there is a price to be paid for involvement, enlarged staffs for the schools, easier access to continued learning for the professional person, and improved service facilities for the institutions. The test will be the amount of dividends that are paid to the people in terms of better health care.

California II


Coronary care training—Area I (San Francisco)

Objectives.—Will develop and establish a confederation of Coronary Care Units throughout northwestern California. Training will be provided for nurses and physicians in patient care and for nurse educators and nurse administrators. Supportive programs will be coronary care conferences; a reference information center and newsletter; and consultation on unit design, management, and specific care problems.

Roseville pilot program

Objectives. Will be a living laboratory for development of programs in continuing physician education, inservice training for paramedical personnel, multiphasic screening, community information and education, tumor board consultation, and cerebrovascular disease and CNS malignancy diagnosis and evaluation. Applicable to entire area.

A training program for physicians in coronary care—Area IV (Cedars-Sinai)

Objectives. To provide training programs for physicians who will occupy positions as directors or associate directors of Coronary Care Units in community hospitals and who will ultimately provide leadership in cardiology at the community level. A basic training course will be given, followed by continuing education and consultative services, and seminars and workshops for continuing liaison between the medical center and community hospitals.

Watts-Willowbrook postgraduate education

Objectives.-Joint proposal of University of California at Los Angeles and University of Southern California Medical Schools, the County of Los Angeles, the Charles Drew Medical Society, and the Community of Watts-Willowbrook. A combination planning-operational proposal. This project will coordinate the establishment of a Watts-Willowbrook district Regional Medical Program with the development of a postgraduate medical school.

RMP medical TV network-A center for the continuing education of health care professionals using television and other audiovisual materials Objectives. Based on the ULCA campus: the project will support medical programs via the Medical Television Network (MTN). Partially funded by a PHS contract (expires June 30, 1968) MTN began as a pilot program. Seventy participating institutions in 6 counties and 6 producing institutions. A community enterprise; all programs are officially approved for credit by American Academy of General Practice.

Program for training physicians and nurses in coronary care techniques

Objectives. The pogram will begin with a central training center at the Los Angeles County Hospital and two cooperating hospitals (Good Samitarian and St. Vincent's). This central program will provide a base to initiate training for the entire region and will be expanded to include 6 additional hospitals in the second year.

Training of physicians in intensive care for small hospitals (pilot program, Pacific Medical Center)

Objectives.—A pilot project (one year only) designed to train physicians in skills, as applicable in a small general hospital, in order to provide intensive care to patients with acute myocardial infarction. (Designed for hospitals not covered under Project #1).

Hypertension-Area I-University of California, San Francisco-Northwest California

Objectives.-Demonstration training program for medical and allied health personnel in ten (10) community hospitals for referral and followup of hypertensive patients. Includes computerized registries.

Pediatric pulmonary-Area VIII

Objectives.-Irvine Pediatric Pulmonary Demonstration Center. Center will demonstrate the proper diagnosis and treatment of children with respiratory problems; to investigate the relation of pediatric pulmonary disease to chronic conditions of later life.


1. The American Medical Association News of August 28, 1968, carried a story indicating that the cost of Medi-Cal for the past fiscal year was $208.1 million, about one-third less than originally predicted. Is this a correct statement? May the Subcommittee have a statement on the reasons for this reduction in anticipated cost?

Answer. The correct figure for the State of California General Fund estimated cost of Medi-Cal for the fiscal year 1967-1968, as approved by the Legislature in May, 1968, was $232.7 million. This was a reduction in the original estimate of the cost, which was $305 million. This estimate ($305 million) was revised in December of 1967 to $274 million. Reasons for the decline in cost were a decline in utilization of certain services, specifically including dentistry, and the effect of more strict utilization controls imposed as a means of trying to reduce the total cost of the program. The medically needy caseload also showed a slower rate of increase during the second year of operation of the program than had been anticipated based on first-year utilization.

2. How many persons past 65 have been served by the Medi-Cal program since it was established? What kind of treatment have they received? Do you have estimates of average costs for the elderly as compared to other age groups? Answer. The total number of persons 65 and over who were eligible for Medi-Cal benefits was 410,900. Based upon an expanded one per cent (1%) sampling of Medi-Cal recipients for the fiscal year 1966-1967, we believe that 337,000, or 82.5 per cent of this number, received some benefits from Medi-Cal during that fiscal year. The categories "Physicians" and "Drugs" constituted the largest type of treatment received. Of this 65 and older group, almost 10 per cent received nursing home services each month. Unfortunately, our average cost per eligible for those people 65 years and older cannot be used to compare utilization and costs between other age groups, because our data do not include Medicare services and costs.




DECEMBER 12, 1968.

DEAR SENATOR WILLIAMS: Our office reported that minimally eight million dollars is being bilked annually from the Medi-Cal Program by medical practitioners. A copy of the report supporting our findings is attached for inclusion in your transcript.

As we indicated in our report, we believe that such cheating seriously injures both the program and the public. Since the release of our report, we have learned that similar problems are occurring in other states. One official told us that we could remove the cover from our report, replace it with the name of his state, and re-issue it with no other changes.

Our investigation found that Medi-Cal abuses have a particular impact in terms of nursing homes and long-term case facilities. Medicare provides greater reimbursement to nursing homes than Medi-Cal. Therefore, the potential for transferring a nursing home patient from Medi-Cal to Medicare may determine the patient's admittance to a nursing home. Special arrangements between hospitals and nursing homes exist solely for the purpose of maximizing government payments to nursing homes. We also found nursing homes requiring underthe-table payments before admitting patients.

A major problem is the sheer "bigness" of the program. Efforts to manage the program through the Blue Shield office in San Francisco and the Blue Cross offices in Los Angeles and Oakland have obviously created enormous difficulties which are thoroughly discussed in our report. Special consideration should be given to localizing the administration of this program. Smaller regional administrative units might reduce the management of the program to a scale which may be encompassed by the mind of man. At the present time, Blue Shield receives 80,000 claims a day at its main office in San Francisco. This obviously presents a burden which even the most advanced computer cannot handle in terms of both processing the claims and effectively weeding out frauds.

Aside from conquering the immensity of the program through some effort at localization, another broader concept may also be seen in the problems which we have uncovered. A major contributor to these problems was the pressure on the State of California to take advantage of the funds made available by the federal government through Title Nineteen. Better coordination between local governments, the state and the federal government would certainly have resulted in a better program. As we note in our report, peril accompanies prosperity when federal funding rushes the states into adopting hastily conceived programs. We emphasize in our report that none of our comments are intended to derogate the Medi-Cal Program. We consider it essential. Our sole goal is to improve this program. We hope that this report will aid you in your efforts. We will be happy to supply any further information which you may require.


CHARLES A. O'BRIEN, Chief Deputy Attorney General.




February 5, 1968.

Memorandum to: Herbert Davis, Deputy Attorney General, Los Angeles.
From: Charles A. O'Brien, Chief Deputy Attorney General.
Subject: Medi-Cal investigation.

This office continues to receive information concerning widespread abuses of the state's Medi-Cal Program. These alleged abuses include fraud, kickbacks, inflated charges and double-billing by persons providing services under the program.

We have held two meetings in San Francisco to explore this problem and have concluded that it merits investigation. Since the bulk of the Medi-Cal expenditures are in Southern California, any investigation should properly be directed from the Los Angeles office. It is assigned to you, as head of our Health Plan Registration Unit.

In conducting this investigation, our aim should be to improve-not to impede this program. Medi-Cal is an essential state program, which is allegedly being hampered by fraud and mismanagement. Our primary effort should be to determine the extent of fraud-if any-and the possible remedies, either through criminal prosecution or administrative action. We should also be prepared to make recommendations to improve the management of the program, if our investigation discloses areas requiring improvement.

CHARLES A. O'BRIEN, Chief Deputy Attorney General.

November 6, 1968.

Memorandum to: Charles A. O'Brien, Chief Deputy Attorney General.
From: Office of the Attorney General, Herbert Davis, Los Angeles.
Subject: Report of Medi-Cal investigation.


On February 5, 1968, the Attorney General ordered an investigation of the California Medical Assistance Program (Medi-Cal).

The investigation was based upon information received in this office from numerous persons which indicated extensive fraudulent activities and other abuses by persons participating in the Medi-Cal Program.

The Medi-Cal Program commenced on March 1, 1966. For the fiscal year ending June 30, 1967, Medi-Cal paid approximately $600,000,000 to 70,000 vendors who provided services to 1.5 million persons eligible to receive benefits under the program. It is estimated that Medi-Cal will spend around $800,000,000 in the current fiscal year.

Of the money spent under the Medi-Cal Program, approximately fifty per cent is paid by the federal government with the state and counties contributing the remainder of such funds.

Our investigation indicates that illegal and unethical activities of persons providing services under Medi-Cal are siphoning millions of dollars annually from the program. Poor administration of the program has contributed to further needless expenditure of money by Medi-Cal.

The vast scope of the program precludes any precise estimate of the total amount of funds paid out due to poor administration of the program, outright fraudulent activities and the excessive providing of services.

Our investigation leads us to conclude that six to eight million dollars annually is being drained from the program by illegal and unethical activities of various professionals involved in Medi-Cal. This would not include funds paid out in error and as a result of faulty administration.

The primary abuses of the program involve submission of false claims, kickbacks, and overservicing.

In February 1967, Governor Reagan appointed a Task Force to review the administration of the Medi-Cal Program. This committee recommended changes which would allegedly save Medi-Cal $90,000,000 annually.

The Office of Health Care Services, which administers Medi-Cal, estimates a total of 2.5 million dollars in overpayments have been made to individual practitioners since the inception of the program. For the fiscal year ending June 30, 1968, vendors voluntarily returned 1.5 million dollars in overpayments. Thousands of dollars in overpayments are still voluntarily being returned each month.

In addition to the violations of the laws and regulations of Medi-Cal by the vendors, the investigation disclosed that an effective enforcement program to discover, investigate and deter such activities does not exist.

The complex nature of Medi-Cal and the large numbers of participants—both vendors and recipients of health care services-prohibited a thorough investigation by the Department of Justice into the conduct of each individual vendor suspected of engaging in unlawful or unethical activities. The investigation was therefore conducted primarily to determine the nature of abuses being engaged in under the program.

This report does not attempt a complete "white paper" on the Medi-Cal Program. It does attempt to identify the problems and supply new guidelines-especially in the area of enforcement-which will result in savings for the taxpayers by curtailing the current amount of abuse.

In preparing this report we recognized the problems confronted by Health Care Services in administering a program which was hastily conceived and implemented. The necessary planning and research needed for the effective operation of the worthy goal of the Medi-Cal Program unfortunately did not accompany the initial enactment of the program. This is certainly not the fault of Health Care Services.

There is a lesson here for both the state and federal governments. The enactment of federal legislation which requires immediate response from the states to take advantage of federal funding is laden with peril, as well as with token prosperity. Unprepared and without sufficient analysis, the states are rushed into formulating programs which are both essential and ill-considered. There should be an effort by both federal and state governments to transform such programs into more meaningful and fruitful cooperative actions.


1. Establish an Effective Investigating Unit.

2. Improve Procedures to Expedite Suspension Proceedings.

3. Publicize Existence and Actions of Investigating Unit.

4. Establish Liaison with Professional Licensing Boards.

5. Improve Communication Between Organizations Participating in the Administration of the Program.

6. New Regulations.

7. Review Procedure of Processing Claims.

8. Improve Use of Computers.

9. Review Claims on a Local Basis.

10. Post Examination of Claims.

11. Controlling the Cost of Drugs. 12. Scope of Benefits.

13. Third Party Liability.

14. Purchase of Appliances.


I. Background

Medi-Cal became effective on March 1, 1966. The program was placed under the supervision of the Health and Welfare Agency which established the Office of Health Care Services (HCS) to administer the program.

Prior to Medi-Cal's enactment, the State of California provided health care services to indigents through a variety of different programs known as Public Assistance Medical Care and Medical Assistance to the Aged. These programs were administered by the various counties in the state. Administration of these programs involved determining eligibility of recipients, authorizing vendors to provide health care services and receiving, reviewing and processing claims of vendors for payment. (Some counties contracted with California Physicians' Service to assist them in administering the program.) Professional consultants were used by the counties to assist in reviewing claims and to authorize requests to provide services.

Medi-Cal was passed in response to Title 19 of the Social Security Law which provided that the federal government would share on a 50-50 basis in the cost of California's new program including services then being financed entirely by the state or county. This permitted the unification of all major governmental health care systems which provided care for the indigents into a single system financed by the state, counties and federal government.

24-798-69-pt. 3—14

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